Are Egg Donor Expenses Tax Deductible?

Egg donation is a service that is available to individuals or couples who do not have or cannot use their own eggs to build their families. Typically those who use egg donor services also make use of fertility treatments for conception. As well, they cover the costs for the tests and medical treatments, legal fees and compensation for the egg donor. The cost of using egg donor services can add up really quickly, therefore let us look at egg donor expenses in relation to taxes.

Are Egg Donor Expenses Tax Deductible?

For some, payments for egg donor services for family building may be covered in their medical insurance plan, while for others this cost is covered in part. Insurance cover varies from one insurer to the other, and is governed by State laws that vary from one State to the next. The good news is that egg donor expenses are classified as medical expenses qualify for tax deduction. While this is so, before beginning the process, it is prudent for one to consult with their health insurance provider to be certain whether their fertility treatments and specifically egg donor services, are covered in their plan.

How Egg Donor Compensation Is Classified

As mentioned earlier, those who wish to use egg donor services are obligated to cover the costs associated with the service, including compensating the egg donor themselves. While egg donation may be voluntary, egg donor compensation is not a gratuity. It is considered fair compensation for the time, inconvenience (and perhaps pain or suffering) incurred during the egg donation process.

Egg donor compensation is not to be confused with a settlement, which is typically not subject to tax. A settlement is compensation for pain and (or) suffering as a result of accidents and personal injury. This compensation is based on the injured being unaware of the risks or side effects ahead of the accident or injury. Egg donors proceed with donating their eggs willingly, after having understood that any pain or discomfort they may experience is part of the egg donation process, rather than an accidental infliction of pain, or an involuntary invasion of their bodies.   

Egg donors also sign legal agreements with recipients outlining each of their roles and responsibilities with regard to the egg donation process and the children conceived from the donated eggs. Legally then, because the compensation egg donors receive is based on a service they willingly undertake, the compensation can be taxed as income on the part of the donor, as well, deducted as an expense on the  part of the recipient.

IRS Guidelines on Egg Donation Income

According to the IRS, egg donation compensation is an income received for egg donation. Egg donation typically takes about two to three months from start to finish. This is the average time for eggs that will be frozen for future use. If eggs will be used fresh, then the donation process could take longer. 

In this duration, costs such as transport, meals or accommodation may be incurred by the donor, and these costs are classified as an allowance separate from the compensation package. For these, should a donor pay out of pocket, they are typically refunded. Allowances that are issued in regard to egg donor expenses can be deducted by the donor when filing their egg donor income.  

When it comes to the actual filling, income for egg donation ought to be filed. For a single person filing, the standard deduction starts at $12,000, so if an egg donor’s compensation is less than this, it will not be taxed.

Can Medical Expenses Be Deducted?

For recipients of egg donor services, egg donation medical expenses are deductible. To know how much of the medical expenses incurred are deductible, one needs to have the total cost for the medical expenses incurred. The amount that is deductible is what is excess of 7.5 percent of a person’s income. If this amount is more than $13,950, when itemized medical costs are included, then it qualifies for deduction. Step by step this means that one must first calculate 7.5 percent of their annual income. Then add up all the medical expenses incurred for egg donor services. Next, subtract the total medical expenses from 7.5 percent of the annual income. If this figure is more than $13,950 then egg recipients can file those costs as a deductible. 

Tax Filing Tips for Egg Donors

Tax season can be an overwhelming time even on regular income. Here are a few tips you can use as an egg donor, in order to ensure that you file your income correctly:

Understand your agreement:

Before you sign your egg donor agreement, ensure that you understand how much you are receiving in compensation, when you shall be compensated, if there are any allowances, whether there is reimbursement for related out-of-pocket expenses, and how they will be reimbursed. You will pay taxes on the total compensation package you receive. 

Seek professional advice: 

Before donating your eggs, speak to a tax advisor regarding the income you are expecting from egg donation. Ensure that you address what the extra income means for taxes, compared to previous years, how much you can expect to pay in taxes, and how to file the income properly.

Use one form: 

Since egg donor compensation is considered an income, it should be filed in the same form as your regular income. Egg donor income will be filed under ‘Other Income’ because it is not earned through employment or business activities. 

Tax brackets:

Egg donor agencies are quite generous in their egg donor compensation. As well, the compensation varies based on the agency and the State one donates their eggs in. Your taxable income could be pushed to a higher tax bracket with the inclusion of egg donor compensation. As well, this could be affected by how many times you donate within a particular fiscal year. 

Multiple donations:

For those who would like to donate more than once, it is important to note that the regularity with which you donate could cause your egg donor compensation to fall under earned income as a self-employed individual in business.  This would have a different impact when it comes to filing your income and paying taxes. 

Student donors:

If a donor is under the age of 24 and a full time student, they cannot file their egg donor income as a standard single filing. This income will be taxed when filed under ‘other income’.

Keep financial records: 

The best way to ensure that you file your taxes correctly, and particularly in relation to egg donation compensation and allowances, is to keep accurate financial records. Keep track of the expenses incurred, as well the allowances and income received. In this way, you will have the correct figures when it comes to filing, and this will make the process easier.

Conclusion

There are many who have insurance for fertility treatment, and still many others whose insurance does not cover egg donor services. This means that there are many who spend out of pocket for egg donor expenses. A certified tax adviser is best placed to help you know how much to expense on your taxes. There are fertility centers who offer financial support through payment options for their patients who use egg donors. Contact Utah Fertility Center to find out if you qualify for egg donor financial support.

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